Run On The Fund

AAA

DEFINITION of 'Run On The Fund'

A situation in which a hedge fund faces an increasing amount of redemptions, causing the fund managers to sell positions to meet the withdrawals. A run on the fund can happen for several reasons but is usually the result of poor performance from the hedge fund. If the run on the fund is large enough it could force the fund to close its operations after most investors have taken their money out of the fund.

INVESTOPEDIA EXPLAINS 'Run On The Fund'

A run on a fund starts out slowly but quickly increases as investors rush for the exit, as increasing redemptions are generally considered to be negative and no one wants to be around near the end of the run. The reason for this is that redemptions force a fund to sell out of positions to produce liquidity to meet the redemptions. This selling will often weigh on the performance of the fund as the fund is forced to sell at inopportune times leading to losses.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses advanced ...
  2. Liquidity

    1. The degree to which an asset or security can be bought or ...
  3. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  4. Redemption

    The return of an investor's principal in a fixed income security, ...
  5. Redemption Suspension

    A provision on a hedge fund preventing the withdrawal from the ...
  6. David Tepper

    A legendary investor who specializes in distressed debt and manages ...
Related Articles
  1. A Brief History Of The Hedge Fund
    Options & Futures

    A Brief History Of The Hedge Fund

  2. Hedge Funds: Higher Returns Or Just ...
    Options & Futures

    Hedge Funds: Higher Returns Or Just ...

  3. Hedge Funds Hunt For Upside, Regardless ...
    Options & Futures

    Hedge Funds Hunt For Upside, Regardless ...

  4. Don't Be Misled By Investment Advertising
    Home & Auto

    Don't Be Misled By Investment Advertising

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center